Analysts have been screaming that it is going to be a bad quarter for IT companies, when they declare their results for the quarter ending Sept 30, 2016. Most IT companies have sounded warnings over their quarterly numbers, before the outcome is known.
Some reports suggest that it is going to be the worst quarter for IT companies in a decade. But, IT stocks have reacted very dramatically with most IT companies hitting 52-week lows or near 52-week lows. Is it time to grab these stocks now? We tell you the answer at the bottom of the article, until then read on.
Infosys to declare numbers on Oct 14
IT major Infosys will declare its results on Oct 14. The company has already cuts its guidance once this year, and analysts believe it may lower its guidance again, after declaring its quarterly numbers.
It will not be a surprise, if Infosys forecasts growth of around 9.5 per cent for the year, cutting its already lowered guidance of 10-11.5 per cent growth. The key to buying the stock would depend on this guidance for the full year.
If the guidance falls, it would be below NASSCOM targets for the industry as a whole.
What to watch in the Infosys numbers?
Apart from the guidance, one needs to watch for margins, to see if wage hikes has really impacted margins. Attrition rate, is another issue with Infosys, as a host of biggies in the management have left the company in the past.
Generally the most important would be the management commentary and what they perceive of the future. If you are buying the stock ahead of the key quarterly numbers, it could pose some amount of risk.
Wage hike to impact Wipro?
Wipro, does not make too much of a forward guidance, except for one quarter. Wipro would be impacted by the hike in wages, which would be another issue. Management commentary would be eagerly anticipated.
The problem for Wipro is that it has been hurt by lesser investments in the oil and gas sector and its higher dependence on a few large clients. The results are going to be interesting to watch for Wipro, as also most other IT companies.
If Donald Trump becomes US President?
It will be bad news for the IT sector, if Donald Trump becomes US President, as he opposes US H1-B visas, on which Indian IT companies depend.
A bulk of the IT revenues for companies like TCS, Infosys, Wipro and HCL come from the US. This is what had said earlier this year.
"I know the H1-B very well. We shouldn't have it, it's very, very bad for workers," Mr. Trump said during the Republican debate at Miami University. He added as an employer, he's used the program, but in reality it doesn't benefit U.S. worker."
One will have to wait and watch for the results of the US Presidential elections in Nov, though at the moment, the chances of Donald Trump winning are bleak.
Low prices of both Wipro and Infosys
Infosys, at Rs 1031, hit an almost 52-week low of Rs 1015, last week, but recovered on some short covering. Wipro on the other hand is very close to its 52-week low price of Rs 470.
The current market price of the stock is Rs 477. Most smaller IT companies are also trading at similar levels of very low prices.
Should you grab Infosys and Wipro shares?
Do not rush to buy Infosys and Wipro ahead of their results. Infosys, saw some recovery in trade on Monday and the stock is now trading at Rs 1031.
The problem with the Infosys stock is that it is capable of moving 10 per cent in either direction on the day of its results.
It is a highly volatile stock. We believe that if the management does not cut the guidance below 9 per cent, Infosys would be a good stock to buy, if you get it around the 950 levels.
As far as Wipro is concerned, we are still not confident the stock can generate returns.
The article is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.